Leading marine transporter DryShips Inc. (DRYS) is gradually transforming itself into an ultra-deepwater drilling company rather than continuing as a simple drybulk cargo operator. The acquisition of Ocean Rig UDW Inc. (ORIG) turned out to be a major positive in this regard. Incorporation of Ocean Rig’s assets and contract portfolio diversified DryShips’ asset base and sources of cash flow.
DryShips has a well diversified portfolio comprising drybulk vessels, oil tankers and offshore oil drilling units.Ocean Rig’s operational expertise provided DryShips with the necessary platform to compete in the ultra-deep water drilling sector. DryShips currently holds around a 57% stake of Ocean Rig. At the end of the first quarter of 2014, the company’s oil drilling division had about $5 billion of order backlog.
Recently, Ocean Rig signed a 6-year definitive agreement with Total E&P Angola Block 32 to drill offshore areas of Angola. The contract is expected to commence in the third quarter of 2015 and has an estimated of around backlog of $1.3 billion. In Apr 2014, Ocean Rig declared the postponement of the delivery of its ultra deepwater drillship, the Ocean Rig Santorini, from late-2015 to mid-2016.
The offshore drilling market continues to flourish, buoyed by increased spending from oil companies and significant ultra-deepwater oil field discoveries. The deepwater oil drilling segment is currently witnessing shortages of rigs throughout the world, as energy companies have raised the level of production.
We believe that the demand for deep water drilling services will improve in the near future due to the discovery of several big new deepwater oil reservoirs. Ocean Rig has high-quality drillship fleets, which enable oil explorers to operate even under harsh environment.
Other Stocks to Consider
Currently, both DryShips and Ocean Rig carry a Zacks Rank #3 (Hold). Other better-ranked stocks in the shipping industry are Global Ship Lease, Inc. (GSL) and Nordic American Tankers Ltd. (NAT). Both of them currently hold a Zacks Rank #2 (Buy).